Your greatest advantage today can turn into your worst drawback tomorrow. Such is the vagary of life that NCBA, the third-largest bank in the country, is grappling with after President Uhuru Kenyatta signed into law the Finance Bill, 2021.
With the ratification of the Bill, all the lenders with mobile lending and saving platforms have been forced to increase the cost of their loans, with all fees and commissions related to loans now attracting a 20 per cent excise duty. READ MORE
But for NCBA – which co-owns mobile lending and saving platform M-Shwari with Safaricom – the increase in the cost of mobile loans is more pronounced.
For instance, let us say you take a loan of Sh5,000 from M-Shwari or KCB M-Pesa to be repaid in 30 days and an overdraft facility of the same amount from Fuliza, a micro-credit product that NCBA co-owns with Safaricom, which will be repaid in 10 days.
You will pay an additional Sh450 for the M-Shwari loan, an increase of 20 per cent compared to Sh375 that you would have paid before the new changes.
On the other hand, the same amount from KCB M-Pesa will cost you an additional Sh64.5 or an increase of 17.6 per cent.
This means you will now pay KCB Sh432 compared to Sh367.5 that you would have paid the country’s largest bank before the enactment of the Finance Act, 2021.
With Fuliza, in addition to the interest of 1.083 per cent, about Sh54, you will also to pay a daily fee of Sh30, translating into Sh300 in 10 days.
However, because this daily fee will now be charged an excise duty of 20 per cent, you will pay an additional Sh60.
As a result, where you were paying Sh354 for an overdraft of Sh5,000 through Fuliza, you will now pay Sh414. ?
The reason M-Shwari has been hit the hardest by the new taxes compared to other platforms is that what the lending entities charge for their mobile loans is not interest but a “facilitation fee.”Robert Waruiru, a senior tax manager at KPMG East Africa, noted that with the amendments the idea was to collect excise duty on fees and commissions charged when advancing a loan.“So if M-Shwari says that ‘we don’t charge interest which is exempt from excise duty,’ then the entire amount is deemed to be a fee or a commission for disbursing the loan,” explained Mr Waruiru.It is an argument that […]